The Islamic finance and Shariah advisory firm Amanie Advisors announced in their blog post that they have joined hands with the Ethereum Foundation to establish the platform’s compliance with Islamic religious law (Shariah). According to the Blog Amanie Advisors has collaborated with Ethereum Foundation to conduct a research on Ether as a cryptocurrency and the Ethereum platform in the attempt to provide Shariah views and opinions on these topics.
The main objective of the paper is to outline the Shariah parameters of Ether, the cryptocurrency of Ethereum platform based on the extensive research on the subject from the perspective of Shariah and Islamic finance industry. As with other cryptocurrencies, there are uncertainties especially from the Islamic community whether it is permissible for them to get involved in the space either in the mining or trading aspect of Ether or in the development of smart contract and decentralized applications.
The hypothesis prior to the research was that if Ether as the native cryptocurrency of the platform is deemed permissible or in a more friendly terminology in the Islamic finance community – “Shariah-compliant”, then the public shall be more confident and assured to be more active in participating in the development of Shariah compliant smart contracts and decentralized applications which is now still lagging behind. It is hoped that with the findings, parameters and guideline outlined in this paper, it would serve as a catalyst to the Islamic finance market, and wider Muslim population to enter and participate in the space as well.
The paper has been presented to and discussed with the Amanie Shariah Supervisory Board. The Scholars have endorsed the whitepaper which can now be downloaded below:-
Last year, under the Shariah Review Bureau (SRB), Stellar became the first Distributed Ledger Protocol (DLT) to get Shariah compliance certification in the money transfer and asset tokenization space. Following the collaboration, the company published a report to explain Ethereum’s compliance with the Islamic Law that governs the financial market.
The report started by explaining the meaning of money in Islam. It stated that Islam does not consider money as a commodity, but as a medium of exchange. Therefore money possesses no inherent utility. “There is no room for making a profit through the exchange of money in the same denomination,.The profit earned through the exchange of money (of the same currency or denomination) or the papers representing them is interest, and therefore is highly prohibited in Islam.” Indicating that, if Ethereum were used in making a profit from interest, it would not be Shariah-compliant.
Shariah law maintains a strict standard for financial activities and penalties, especially in cases of particular, usury( lending at unreasonably high interest). So, Amanie Advisors raised questions about whether Muslims should mine or trade Ether, deploy decentralized applications (DApps) or smart contracts on the platform.
Before Amanie Advisors reached any conclusion, they were researching Ethereum thoroughly. They stated: “It is hoped that with the findings, parameters, and guideline outlined in this paper, it would serve as a catalyst to the Islamic finance market, and wider Muslim population to enter and participate in the space as well.”
In August, Suhaida Mahpot, the CEO of Amanie Advisors, said that she saw the current reluctance to accept crypto among the Islamic community to be uncertain. She explained, "We need to educate institutions more about how digital currencies can be accepted, and how the transparency from using cryptocurrency would benefit the wider society. Perhaps, this mindset will change over time.
The scholar-endorsed white paper affirmed that the platform and the currency are Shariah-compliant. The paper also included the Shariah endorsement of the project and the coin. Shariah-compliant also means Islamic financial institutions in the Gulf Cooperation Council (i.e. Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, UAE) and parts of Southeast Asia (e.g. Indonesia and Malaysia) will now be able to mine and trade ETH.